What is the combination of two or more firms involved in different stages of producing the same good or service?

Small businesses conduct mergers and acquisitions for the same reasons large corporations do – to strengthen positions in one or more markets, gain access to new markets, increase efficiency or just diversify a company's offerings. There are several types of merger strategies of particular interest to small businesses and each has something to offer depending on your company's goals.

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The three main types of merger are horizontal mergers which increase market share, vertical mergers which exploit existing synergies and concentric mergers which expand the product offering.

Mergers vs. Acquisitions

A discussion about corporate combinations should note that, strictly speaking, true mergers are rare. A merger occurs when two companies come together as equals and form an entirely new company. Many business combinations billed as "mergers" are really one of several types of acquisition. If a company buys another and absorbs its operations, it has completed an acquisition. The distinction is mostly technical, although calling the deal a merger shows deference to and respect for the other company's employees and former owners.

Horizontal Mergers Increase Market Share

Horizontal mergers involve companies that offer the same products or services to the same kinds of customers. If your business mows lawns and you combine with another lawn-care company in your town, that's a horizontal merger example. Horizontal mergers offer "economies of scale," meaning that average costs decline as the company does a greater volume of business. Such mergers also increase market share. And they offer opportunities for cost savings by eliminating redundancies: Where the original companies each needed their own purchasing department, advertising budget, benefits program and so on, the merged firm only requires one.

Vertical Mergers Create Synergy

A vertical merger combines two companies that are involved in producing the same goods or services but at different stages of production. Say you own a manufacturing company that makes items out of plastic. Merging with a company that makes raw plastics would be a vertical merger. Vertical mergers help prevent business disruptions; the manufacturing operation no longer has to worry about obtaining enough plastic, while the plastics operation gets a steady customer. Cost savings through eliminating redundant functions are also possible.

Concentric Mergers Expand Offerings

Concentric mergers, also called congeneric mergers, occur between companies within an industry that serve the same customers but don't offer them the same products or services. If you owned a catering company, for example, and you merged with a business that rents tables, chairs, event tents and party equipment, that would be a concentric merger. Both companies appeal to customers who have events to plan, but not in the same way.

Concentric mergers diversify the combined company's offerings and allow the firm to benefit from areas of shared expertise. These mergers can also drive new business, because the firm becomes more of a "one-stop shop" offering more of the services that both companies' customers are typically looking for.

Conglomerate Mergers: a Fourth Possibility

Although not as common as they were during the 1960s and '70s, a fourth type of merger is the conglomerate merger. In this business move, two companies from different industries or geographic locations join forces. In a pure conglomerate merger, the companies are completely unrelated in their product offerings. In a mixed conglomerate merger, the companies are looking to expand their product offerings or market reach by joining with another company.

One of the advantages of these types of corporate combinations is that the new company now has the ability to reach a wider market by expanding its customer base. The combined company has access to all the customers familiar with products sold by the separate entities and can now market to everyone. However, these mergers are often difficult to pull off effectively as the two unlike entities must function together and adjust their operating processes, business models and corporate cultures.

What is the combination of two or more firms involved in different stages?

What do we call the combining of 2 or more firms involved in different stages of producing the same good or service?

What is it called when two or more firms combine to form a new firm?

What do we call the combining of 2 or more firms competing in the same market with the same good or service?